This is a guest post by Patrick Collins of Schultz Collins Lawson Chambers, Inc., the firm we hired to advise us on how to handle Kazan Law’s pension funds, our charitable foundation’s funds, and that some of our partners hired to advise them on personal money management.

The horrible byproduct of taking investment risk with your asbestos settlement is that losses may trigger considerable regret. Had you not taken the risk, the money would still be in your pocket. Damn.

Here are some propositions for you to consider regarding your asbestos settlement:

Proposition One: Wealthy folks don’t need to take investment risk. If you have a sufficient amount of money to support your spending and bequest needs, you don’t need to earn high investment returns. Billionaires like Bill Gates and Warren Buffett do not need to make risky investments—even if they never earn an additional dime, they will never be able to spend all of their wealth. This is why the super-rich give hundreds of millions of dollars to charitable causes. If you are super-rich, you don’t need more money. No need = no reason to take risk.

Proposition Two: The amount of risk you need to take with your asbestos settlement depends on the budget required to support a target standard of living for yourself and your family. All else equal, the higher your monthly budget, the more you may need to supplement existing wealth with money earned from future investment returns.

Proposition Three: It is not just your level of spending that determines the amount of investment risk that you need to take with your asbestos settlement. Rather, it is the level of spending relative to your existing wealth.   If you have a million dollars and want to live in a cabin in the woods and be self supporting, you probably do not need to send much, if any, of your current wealth into the future. If you have a million dollars and want to live like Donald Trump, you probably need to consider how to fund a great many future expenses.   A need for money to pay future bills = a reason to take investment risk today.

Proposition Four: Without risk there is no reward; taking risk with your asbestos settlement, however, does not guarantee that you will be rewarded. The whole idea of risk is that the value of an investment might shrink instead of grow. As a consequence, you must plan your investments carefully and take only the risk that you really need to take—not too much, not too little.

The first step is to figure out a budget—even if you do it on the back of an envelope. Write it down. Look at it. Chances are you’ve forgotten some important items so bump it up. Put in a margin for unexpected expenses. You are on your way to determining if you have the luxury of avoiding investment risk; or, if you need to become an investor.

The posts provided by Schultz Collins Lawson Chambers, Inc. [SCLC] convey information on basic investment concepts.  They are intended to facilitate prudent investment decision making.   They should not, however, be the sole factor in making investment decisions; and, they are not intended to act as advice or recommendations for any specific investor.    SCLC acts as Independent Investment Counsel and is a Registered Investment Advisor.  It does not provide legal, accounting or tax advice; and the opinions expressed in the posts are solely those of SCLC.  You can find additional information about SCLC, their personnel, and client services at www.schultzcollins.com. 

Related posts:

Your Asbestos Settlement and Investing

Your Asbestos Settlement and Financial Risk

This is a guest post by Patrick Collins of Schultz Collins Lawson Chambers, Inc., the firm we hired to advise us on how to handle Kazan Law’s pension funds, our charitable foundation’s funds, and that some of our partners hired to advise them on personal money management.

Financial risk and uncertainty are both important aspects of investing your asbestos settlement.   As a general proposition, let’s assume that “uncertainty” is a condition that makes individuals more scared of taking risk.  When a child is uncertain about how the world works, he or she might be very concerned about what type of monster hides under the bed at night.  Getting out of bed when the lights are turned off is viewed as a risky undertaking.  As an adult with more experience and knowledge, such worries seem comical—however, to a child they are very real.

Fear, however, is no laughing matter.  Uncertainty drives both adults and children to protect themselves by avoiding situations with which they are unfamiliar or uncomfortable.  Investing often involves a fear of the unknown.

Lack of familiarity with financial concepts and technical jargon can make investing your asbestos settlement seems very risky.  The less you know, the easier it is to imagine bad outcomes, and the more attractive a safe alternative like a bank account may appear.  Equally worrisome, the less you know about a subject, the more reliant you become on trust.  Can you trust the auto mechanic not to overcharge for repairs; can you trust your doctor to give you a correct diagnosis; can you trust a financial adviser not to recommend investments that only serve his or her self-interest?

An American philosopher remarked that the only thing more difficult than making money was keeping it.  News reports often tell the sad story of lotto winners who, just a few years later, are flat broke.  Undoubtedly, these folks would have been better served by putting all their money into a passbook savings account, developing a budget for reasonable living expenses, and sticking to it.  The moral of their sad stories seems to be that everything should be put into the bank—don’t take any risk.

When is risk avoidance the best course of action?  Is there any course of action that is truly risk free?  Is there a reason to put your asbestos settlement “at risk” in an investment program?  If yes, how much should be put at risk?

These are topics for future consideration.

The posts provided by Schultz Collins Lawson Chambers, Inc. [SCLC] convey information on basic investment concepts.  They are intended to facilitate prudent investment decision making.   They should not, however, be the sole factor in making investment decisions; and, they are not intended to act as advice or recommendations for any specific investor.    SCLC acts as Independent Investment Counsel and is a Registered Investment Advisor.  It does not provide legal, accounting or tax advice; and the opinions expressed in the posts are solely those of SCLC.  You can find additional information about SCLC, their personnel, and client services at www.schultzcollins.com. 

Related posts:

Who Needs to Take Risk with an Asbestos Settlement?

Your Asbestos Settlement and Investing